Topic: Business Ethics

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Topic Business Ethics
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Business ethics? (Michael Schrage, Fortune)

• Im not shocked when people behave badly. I
  expect it. Im impatient with those who believe
  organizations should be designed to bring out the
  best in people when in fact I think we do well if
  we can prevent them from bringing out the worst.

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Suppose ethics really mattered?How would the
business world look?
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The state of business ethics...

• As Mark Twain said of Wagners music
• Its better than it sounds

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A few facts observations...(Ethics Resource
Center www.ethics.org)

• Enron, WorldCom, etc. unfolded during a time of
  heightened ethical awareness
• For the largest firms (Fortune 50), about 95
  have formal programs and standards. But even
  smaller companies, those below 500 employees,
  nearly 2/3 do.
• Percentage of firms offering formal training is
  up by 1/3 over the past dozen years.
• Channels for seeking advice or reporting
  misconduct are both up over the last five years.

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But...

• Over half of all employees witnessed misconduct
  on the job last year.
• But barely half reported it to management.
• And a third encounter situations at work they
  think invite ethical misconduct.
• About 10 regularly feel pressured to violate
  ethical standards on the job.
• More than 4 out of 5 rate their own ethics as
  above average, but fewer than half think their
  organization can match their own personal ethical
  standards.

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The fundamental question...

• Not Why are some people unethical?
• But How is it possible that in a competitive
  business world, ethical business people can
  survive at all?

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The fundamental question...

• Thats a tough question, one that most would like
  to do something about, in own job, own company,
  etc.
• Complicated question?
• HR VP All that philosophy mumbo jumbo
• Not necessarily

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Suppose ethics mattered...

• A little history (bus. ethics is a new concept)
• The rise of bureaucracy (2nd industrial rev.)
• Work vs. nonwork ethics (Used to be the same.
  Now, largest influence is )
• The rise of organic structures what are the
  rules? (Leader vs. personal ethics)
• So the question really becomes, how do we create
  ethical systems?

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Ethical systems need to be...

• Ethical systems must be simple
• Ethical systems must be values-based

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Ethical systems need to be...

• Ethical systems must be simple (de Gaulle)
• The SETA
• Rules (formalism, e.g., freedom of speech)
• Results (utilitarianism, e.g., nuclear power)
• (Another approach CMD )

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Ethical systems need to be...

• Ethical systems must be simple (de Gaulle)
• Ethical systems must be values-based
• One V.P.s view of values
• Implicit values hierarchy
• Right v. right (J. Badaraccos Defining Moments)

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Values/virtues?

• Plato/Aristotle Wisdom, bravery, moderation
  (temperance), justice, (piety)
• The Book of Virtues (William J. Bennett)
  Self-discipline, compassion, work,
  responsibility, friendship, courage, perseverance
  (conviction), honesty, loyalty, faith
• Others Fidelity, empathy, nonviolence, etc.

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A minor digression

• In addition to right vs. right issues
• Dirty hands issues

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In addition to ethical systems, we need ethical
managers.
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Ethical managers need to show

• Research from the ERC
• www.ethics.org

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Ethical managers need to show

• Where top managers walk the walk, employees are
  50 less likely to observe misconduct.
• The effect of supervisors is usually even
  stronger than that of top management.
• Even coworkers can have a substantial impact. In
  settings in which coworkers embrace ethics,
  employees are 10 more likely to report
  misconduct.

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Ethical work climates

• When we focus on the bad apples, we miss a big
  part of the picture
• That brings us to climate. In strong climates,
  employees 1/3 less likely to encounter misconduct
• But top managers and nonmanagers view climate
  differently. 4 of 5 top managers believe they
  have a strong climate. Only ½ employees do.
• Climate is the lesson of Enron, et al. (See The
  Power of Ethical Work Climates, Organizational
  Dynamics, 2007)

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The research
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A new theory of EWC

• Rests (1986) Four-Component model of ethical
  decision making
• Moral Sensitivity/Awareness
• Moral Judgment
• Moral Motivation
• Moral Character

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Our research shows that EWC consists of

• Collective Moral Sensitivity
• Collective moral awareness
• Collective empathetic concern
• Collective Moral Judgment
• Collective Moral Motivation
• Collective Moral Character
• Norms of self-control
• Norms for assuming responsibility

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Development

• More than 2 years of development
• Tested on 101 organizations
• Products and services
• Profit and not-for-profit

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(No Transcript)
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Results

• The six climate types are distinct
• They all matter
• They matter differently for different outcomes
• They are predictive of a variety of ethical
  outcomes
• And they even predict performance!

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Practical implications

• Normally, not my biggest focus. But
• Suppose your organization does a terrific job of
  ethics awareness, but doesnt seem to be
  translating to ethical behavior
• A framework like this has the capacity to
  diagnose where you are strong, weak
• Guide new initiatives to climate dimensions that
  are weak, and those most strongly tied to
  outcomes you desire
• (Also, not aware of any study linking ethical
  climate directly to performance)

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Topic Additional ToolsThe Balanced Scorecard
(and its link to ethics)
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The Balanced Scorecard

• http//www.balancedscorecard.org/
• http//www.bscol.com/

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The Balanced Scorecard

• Robert Kaplan (Harvard) David Norton (HBR,
  1990s 92, 93, 96, 96, 05)
• Post TQM, Deming, Baldrige, six sigma,
• Management (not just measurement) system for
  translating strategy into action
• Process and outcome focused

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The Balanced Scorecard

• Four perspectives
• The Learning and Growth Perspective
• The Business Process Perspective
• The Customer Perspective
• The Financial Perspective
• Metrics Management by fact (Measurement-based
  management)

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The Balanced Scorecard

• The goal isnt just optimizing performance today
• The goal is to ensure high levels of performance,
  tomorrow and beyond
• (Similar to best current teams approaches, e.g.
  Hackman)

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The Balanced Scorecard

• Can be used broadly, integratively
• Can be used in a more focused way
• Example Ethics
• What can we measure?

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The ethics angle

• Employee diversity
• Whistleblowers Inspectors, Regulators (OSHA
  violations, SEC, FDA, etc.)
• Charitable giving
• Work hours
• Lobbying expenses
• Legal expenses
• Insider trading
• Taxes paid
• Cash flow (good measure of health)
• Dividends
• 401(K) plans (other than company stock?)
• Stock options (expensed?)
• Bond ratings
• Social responsibility

• Level of ethics training
• Employee morale
• Openness, transparency, candor
• Turnover rate
• Union relations
• Hotline
• Nepotism
• Community involvement
• Criminal records (public records)
• Driving records
• Extravagance
• Environmental awareness
• Employee policies (in line with industry?)
• Resignations (especially top managers)

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And a closing thought...